How the Recovery Act Encourages Small Businesses to Increase Hiring

The recently passed American Recovery and Reinvestment Act promises to help small businesses increase their ability to hire employees, which will hopefully stimulate the economy. The White House predicts the legislation will create or save 3.5 million new jobs over the next two years. Here’s a summary of how certain provisions could encourage small businesses to employ new workers.

Tax Credits for Hiring

The stimulus law extends the benefit of the Work Opportunity Tax Credit, which gives businesses a tax credit of up to $2,400 for employing traditionally disadvantaged workers, including disabled employees, food stamp recipients, and ex-felons.

The stimulus package expands the definition of these disadvantaged “target groups” to include certain unemployed veterans and disaffected youth (ages 16-25, who aren’t working steadily or in school).

Jennell Williams, president and CEO of HR Workplace Solutions in Lansdowne, Pennsylvania, says companies who rely on these employees have more of an incentive to hire them. As an added benefit, they’re likely to attract stronger candidates than in years past. “Because so many people are out of work now, small business owners can take advantage of the legislation’s tax benefits while also being more selective about the people they hire,” Williams says.

Additional Microloan Funding

The stimulus package provides an additional $6 million to fund microloans this year, meaning companies who need to borrow smaller amounts of money (up to $35,000) have a better chance of securing the loan.

Access to this funding is important because the cost of hiring goes beyond paying an employee’s wages, notes Sherryl Baker, president of Baker Human Resources Consulting in Charlotte, North Carolina. “Hiring also involves recruitment and training costs. Before we can see an increase in hiring numbers, small businesses will have to increase funding to cover those additional expenses,” she says.